They are employees not independent contractors - court rules

A recent case, Darlaston v Risetop Construction, FMCA 2011 220 highlights the pitfalls and the legal considerations involved. A company called Risetop Construction, the Respondent, represented that a number of contracts of employment were contracts for services. The Applicant, the Government Solicitor, submitted that sham contracting enables employers to avoid legal obligations such as payroll tax, workers compensation premiums, employee entitlements and superannuation contributions.

The case proceeded on the basis of a statement of agreed facts. The Respondents essentially admitted that they were guilty, but that sham contracting was rife in the construction industry in the ACT. And presumably that they were not doing anything that their competitors were not doing and therefore gaining an unfair advantage.

The principles applicable to the determination of penalties for breach of the civil penalty provisions of the WRA have been discussed in a number of cases. One such case which is often referred to is that in which Justice Branson conveniently listed a number of them: Construction, Forestry, Mining and Energy Union v Coal & Allied Operations Pty Ltd (No 2)[1999] FCA 1714:

The following matters, which are not intended to comprise an exhaustive list, seem to me to be considerations to which the Court may appropriately have regard in determining whether particular conduct calls for the imposition of a penalty, and assuming that it does, the amount of the penalty:

(a) The circumstances in which the relevant conduct took place (including whether the conduct was undertaken in deliberate defiance or disregard of the Act);

(b) Whether the respondent has previously been found to have engaged in conduct in contravention of Part XA of the Act;

(c) Where more than one contravention of Part XA is involved, whether the various contraventions are properly seen as distinct or whether they arise out of the one course of conduct;

(d) The consequences of the conduct found to be in contravention of Part XA of the Act;

(e) The need, in the circumstances, for the protection of industrial freedom ofassociation; and

(f) The need, in the circumstances, for deterrence.

Any list of relevant matters is not exhaustive and does not fetter the court''s discretion as to the matters to be considered in setting a penalty, see for example Sharpe v Dogma Enterprises Pty Ltd[2007] FCA 1550). The weight to be given to particular factors may vary from case to case. Each factor needs to be weighed, as her honour in the present case put it, 'in the intuitive synthesis involved in the sentencing process (see Australian Opthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 and Mornington Inn Pty Ltd v Jordan[2008] FCAFC 70 and cases cited therein).'

In the present case, the parties did not differ significantly on what factors may be relevant to the determination of the appropriate penalties, they did however differ in relation to the weight to be given to particular factors in the circumstances of the case. In closing, her honour said that she had considered each of the matters raised by the parties and all the circumstances of the case and that:

I bear in mind, in particular, the purpose of s.900 of the WRA, the consequences of misrepresentations of the nature covered by that section, the fact that the representation was, at the least, recklessly made, the context in which the contraventions occurred and the particular need for general deterrence. The respondents involvement in an industry in which sham arrangements are said to be widespread is relevant to the need for deterrence. It may explain but does not entirely excuse the respondents conduct. At the same time I have had regard to the evidence as to the respondents financial position. Of particular significance is their cooperation and contrition. The respondents admitted liability. The applicant was spared the expense of preparing for a trial on liability. The penalty hearing proceeded on the basis of an agreed statement of facts. While the respondents did not propose a particular discount on penalty to reflect these factors ... it is a matter to be taken into account.

The Act provides for a maximum penalty of 60 penalty units for an individual ($6,600) and 300 penalty units for a body corporate ($33,000). In the event a penalty at the lower range was imposed, for the reasons given above; $10,000 on the company and $2,000 on each of the directors. If the facts had been different so would the penalties.

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